Mid-Morning Look

Wednesday, October 13, 2021

U.S. stock markets are edging lower as initial market strength following an in-line inflation reading fades, led by declines in the financial sector and transports. JPMorgan reports better headline EPS and revenue but worries about inflation and mixed trading figures weigh on the stocks, while airline DAL posted a Q3 revenue miss noting rising energy costs, pressuring the transport sector. Despite the in-line CPI reading (and ahead of PPI data tomorrow), inflation concerns remain prevalent with JPMorgan CEO Jamie Dimon saying in his earnings call that inflation is unlikely to drop in next couple of quarters, echoing comments of BLK CEO Fink saying that inflation is definitely-not transitory. The consumer price index (CPI) for Sept was in-line with economist estimates, sending the U.S. dollar down from 1-year highs and pushing Treasury yields to lows of morning (10-yr 1.53% after topping 1.6% last Friday). Gold prices whippy this morning, trading higher overnight, then falling after the CPI headline data, but later pushing back near highs around $1,790 an ounce, up over 1.5%. Reports that Apple (AAPL) plans to cut production of the iPhone 13 series for 2021 by as many as 10 mln units due to the global semiconductor shortage is failing to really impact the shares or semiconductor suppliers this morning.

Economic Data

·     No major surprises in the inflation report: Consumer Price Index (CPI) data for September showed headline prices rose 0.4% (in-line w ests), while on a YoY basis rose 5.4% vs. est. 5.3%; core CPI (ex Food & energy) rose 0.2% MoM and 4% YoY, both in-line with consensus views).

Sector Movers Today

·     Semiconductors; QCOM announces new $10.0 billion stock repurchase authorization; SWKS downgraded from Outperform to Neutral with $165 tgt at Baird saying they expect a secular slowdown in RF content growth in high-end smartphones, from 30%+ last year to 10% this year and lower in outer years; AAPL suppliers in general (CRUS, QRVO, QCOM, SWKS, AVGO) weaker on reports the iPhone maker to cut production of the iPhone 13 series for 2021; SGH posted a top and bottom line beat for Q4 EPS and revs and guided Q1 above views as well (EPS $1.80-$2.20 vs. est. $1.49)

·     Bank movers; Dow component JPM Q3 revs $30.44B vs. est. $29.8B and EPS better at $3.74 vs. est. $2.97; said Q3 results included $2.1B net credit reserve release firmwide; said provision for credit losses was a net benefit of $1.5B, reflecting a net reserve release of $2.1B; qtrly fixed income markets revenue was $3.7B, down 20%, while qtrly equity markets revenue was $2.6 billion, up 30%; Q3 net interest (NII) income was $13.2 billion, up 1%; Q3 net charge-offs $524M, vs. est. $1.03B; BLK Q3 adj EPS $10.95 vs. est. $9.35 on revs $5.05B vs. est. $4.9B, quarterly long-term net inflows $98B billion, AUM at quarter-end $9.46 trillion vs $7.81 trillion YoY; FRC reported Q3 EPS $1.91 vs est. $1.84 on revs $1.3B vs est. $1.27B; PNFP Q3 EPS $1.75 vs est. $1.55 on revs $341.6M s vest. $328.8M; AB AUM at end of September $742B, down from $761B at August-end; Stephens downgraded MSBI to EW as it has outperformed other Midwest banks and the Nasdaq Bank Index YTD; OpCo upped their PT on JEF to $54 from $41 as they say yesterday’s Investor Day shows the Street needs to start viewing the company as one of the better secular growth stories in financial services instead of a value stock; After yesterday’s merger announcement, COLB was upgraded to Buy at DA Davidson and UMPQ was downgraded to Hold at Truist and EW at Stephens

·     Software movers; SAP raised its 2021 projections for non-IFRS cloud revenue at constant currencies to range from EUR9.4B to EUR9.6B, up from its earlier view of EUR9.3 billion and EUR9.5 billion; also boosts cloud and software revenue at constant currencies view to EUR23.8 billion to EUR24.2 billion from its earlier view of EUR23.6 billion to EUR24 billion; HUBS price tgt raised by several analysts this morning (Canaccord, Jefferies, Needham all over $850) after comments at its investor day meeting yesterday sent shares surging

·     Consumer Staples; FRPT was upgraded to Buy from Hold at Truist and upped its tgt to $175 from $150 saying the hyper-growth story is about to enter its next chapter in which expanded production capacity enables it to meet full growth potential; BRBR was downgraded to Hold from Buy at Truist and cut its tgt to $30 from $35 as believe the dynamics of the proposed spinoff from POST are and will continue to be an overhang on the stock until at least late C1Q22; in beverages, MNST was downgraded to Hold from Buy at Jefferies and lower tgt to $92 saying its U.S. market share losses are worrisome as emerging brands disrupt the energy drink category and supply chain issues likely into ’22 w/category pricing still on-hold

Stock GAINERS

·     INFY +4%; as FY22 revenue growth guidance raised to 16.5%-17.5% from 14%-16% after reporting in line Q3 results

·     KOSS +5%; after Patent Trial and Appeal Board declined to institute a review of AAPL’s two patent challenge against the company

·     PLUG +9%; upgraded to OW at Morgan Stanley due to several strategic partnerships, ~$4bn of cash and cash equivalents on its balance sheet, accelerating revenue growth, and the potential for significant upside from legislative support

·     SAP +5%; raised its 2021 projections for non-IFRS cloud revenue at constant currencies to range from EUR9.4B to EUR9.6B, up from its earlier view of EUR9.3 billion and EUR9.5 billion and also boosts cloud and software revenue

·     SGH +10%; posted a top and bottom line beat for Q4 EPS and revs and guided Q1 above views as well (EPS $1.80-$2.20 vs. est. $1.49)

·     VST +8%; revealed its initial step in its broader capital allocation plan with the announcement of a $2bn common share repurchase program

Stock LAGGARDS

·     AAPL -1%; after Bloomberg reported the iPhone maker plans to cut production of the iPhone 13 series for 2021 by as many as 10 mln units due to the global semiconductor shortage

·     ALGN -5%; among top decliners in the S&P 500 as Stifel said 3Q21 checks came back soft, view risk/reward for the upcoming print differently versus the last handful of quarters

·     CRSP -5%; mixed reviews after the company presented updated CD19 data from the ongoing Phase I CARBON trial of CTX110, an allogeneic CD19 CAR-T for the treatment of relapsed/refractory (r/r) B-cell malignancies

·     DAL -4%; posted a quarterly profit as travel demand began to recover, but revs of $8.28B missed the $8.4B estimate and warned of a pre-tax loss for Q4 due to a sharp rise in fuel prices

·     GRWG -10%; cuts FY21 revenue view to $440M-$452M from $455M-$475M (est. $471.64M) citing termination of the planned acquisition of HGS Hydro – the acquisition was assumed to provide about $20M of revenue for 2021

·     JPM -2%; posted a top and bottom line beat for Q3 earnings, the first bank to report this quarter as qtrly fixed income markets revenue was $3.7B, down 20%, while qtrly equity markets revenue was $2.6 billion, up 30%

·     SNBR -5%; Wedbush said into mattress retail earnings that they continue to see TPX well-positioned for a beat-and-raise, while we continue to see risk for SNBR and PRPL

·     SRPT -6% after announced a $500M stock offering and guided Q3 revs about $166.9M, below the consensus est. of $172M

·     STIM -24%; announced preliminary Q3 revenue of ~$13.8M, well below guidance of $15M-$16M and our consensus’ and meaningfully cut its full year revenue guide from $59M-$63M to $53.3M-$54.3M, a $5.5M cut at the midpoint on top of the Q3 miss

·     Wayfair (W) -4%; downgraded to Hold from Buy at Jefferies saying 3Q web traffic ended weak & 4Q started slow and against a backdrop of supply chain disarray, 2H Street estimates are too high

Syndicate:

·     AvidXchange (AVDX) 2.64M share IPO price $25.00

·     Apollo EndoSurgery (APEN) 8.4M share Spot Secondary priced at $7.75

·     Bicycle Therapeutics (BCYC) 3.24M share Secondary priced at $54.00

·     Relay Therapeutics (RLAY) 13.21M share Secondary priced at $26.50